2Q15 Consensus EBITDA Estimates for Magellan Midstream Are Low
Will Magellan Midstream Partners Beat 2Q15 Estimates?
EBITDA estimates
Analysts expect Magellan Midstream’s (MMP) 2Q15 EBITDA (earnings before interest, tax, depreciation, and amortization) to be 2% lower than the MLP’s EBITDA in 1Q15. That’s also 14% lower than the 1Q15 consensus estimate.
EBITDA is a common metric to measure MLP performance, as it provides a clear picture of a company’s operational performance. At the same time, it excludes non-cash depreciation and amortization expenses that might distort a company’s actual operational performance.
MMP missed EBITDA estimates in 1Q15
Magellan Midstream’s revenues declined in the first quarter of 2015 on lower commodity prices. MMP’s EBITDA also missed the consensus estimate. The company’s EBITDA declined in the first quarter of 2015 compared to the fourth quarter of 2014. The decline in EBITDA was primarily due to increased operating expenses due to less favorable product overages.
The company holds petroleum product inventories that it obtains from overages on its pipeline systems. Changes in the fair value of these agreements over a period are recognized as adjustments to operating expense. Favorable product overages reduce Magellan Midstream’s operating expenses. Buckeye Partners (BPL), NuStar Energy (NS), and Enbridge Energy Partners (EEP) are some other MLPs involved in crude oil and refined products transport and storage. You can read more about BPL in our series In-Depth Analysis: Buckeye Partners’ Recent Performance.
Will MMP beat EBITDA estimates in 2Q15?
The lower commodity prices during 2Q15 might have continued to keep product overages less favorable. This may hurt MMP’s EBITDA for the quarter. The above graph compares MMP’s consensus EBITDA estimates with EBITDA over ten quarters. Magellan Midstream’s EBITDA exceeded estimates in seven out of the past ten quarters. MMP missed its 1Q15 EBITDA estimate by 12.2%.
EEP and Enterprise Products Partners (EPD) missed their 1Q15 EBITDA estimates by 12.1% and 1.8%, respectively. EEP and EPD together form ~14.5% of the Alerian MLP ETF (AMLP). Both AMLP and the ETRACS Alerian MLP Infrastructure ETN (MLPI) track the Alerian MLP Infrastructure Index (AMZI).
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